Perhaps Senator Mulcahy would deal with this in a less comprehensive way, because we have not the time to elaborate.
Application of VAT to Works of Art, Collectors’ Items, Antiques and Used Goods.
This refers to VAT and the way it should be applied to certain goods. It covers used goods, works of art and collectors' items. It refers to the fact that there are special national schemes and contains proposals for new schemes. The implications for Ireland of the proposed Directive are difficult to assess. The Directive is intended to mitigate the double-tax or "cascade" effect in the taxation of used goods. The Irish method of effecting this mitigation at present is to apply a rate of 10 per cent where new goods attract a rate of 20 per cent. We are advised that the present "trade-in" arrangements under which the dealer is liable for VAT on the money consideration only involved in the sale of the new article and later on the price at which he sells the traded in article would have to be discontinued. The Commission's alternative, if adopted, would undoubtedly have an effect on this type of trade in Ireland.
The Society of the Irish Motor Industry believe that it would increase the incidence of taxation. It is difficult to avoid the conclusion that it will at least lead to a noticeable change in the pricing policies of car dealers. A further effect that has also been brought to the Sub-Committee's attention was that in the present scheme the value of the "trade-in" article is not material since the tax applies only to the money consideration, and under the directive only the money values will be required to be controlled. It would possibly mean that more detailed records would be required of the traders. The Sub-Committee were advised that because of the variety of the circumstances, on the basis of existing rates, the annual loss in taxation would not exceed £300,000 but if the "used goods" rate is replaced, where appropriate, by the 20 per cent rate the loss would be reduced to £100,000.
The most important feature of the proposed Directive is the likely effect on trade-in arrangements, particularly in relation to motor cars, as they operate in this country at present. The Sub-committee cannot accept the Commission's proposals in this regard as satisfactory. The Sub-Committee accept the argument of the trade that the assumption on which the proposals are based, namely, that the mark-up on the price of used cars is 25 per cent, is fallacious. Consequently they recommend that this provision in the directive should be resisted.
The Sub-Committee also believe that the motor trade has a case when it claims that whatever input credit is to be allowed in respect of the acquisition price of used cars should be allowed at the time of the acquisition of the used car. We recommend that the position be examined to see if the VAT Directives allow this result to be achieved by national legislation.
The Irish Antique Dealers Association also expressed criticism of the proposals. They pointed out that the antique business in Ireland is characterised by rapid turnover and low profit margins. Accordingly, the charging of VAT on a standard 30 per cent of the dealers' selling price without a deduction for any input tax paid at the time of acquisition would cause difficulties for the trade. They would prefer the present system to remain. We believe that where a dealer sells articles acquired from other taxable persons the proposed Directive would permit his opting for the present tax system in respect of this kind of trade. We had difficulty in interpreting the provision that VAT is to be charged on supplies of goods covered by the Directive where transfers of such items are carried out by persons exercising an intermediate function of whatever kind. The Irish Auctioneers and Valuers Institute interpret this as meaning that auctioneers would be liable for VAT on sales of all secondhand goods. Our interpretation, on the other hand, was that in the case of sales through intermediaries tax liability would arise only if the seller were a taxable person and we noted that this was also the view of the Economic and Social Committee. Whatever the intention we considered that sales by private individuals through auctioneers should not be liable to VAT and we recommended that the proposed Directive be amended accordingly. We pointed out that there is a provision in the Value-Added Tax (Amendment) Bill, 1978, to make auctioneers liable for VAT on their commission.
It was extremely important that the Sub-Committee should have drawn attention to the effect of this on dealing in secondhand cars. Although it was not mentioned, this applies also to tractors and agricultural machinery. A lot of such machinery is imported here and that Directive could have a significant effect on that situation. It is not my intention to take away from the importance of works of art and collectors' items but they are usually confined to a small section of Irish society.
Paragraphs 1 to 16, inclusive, agreed to.
Draft Report agreed to.
Ordered: To report accordingly.